Our ongoing observations about whether the boom has peaked

[flahute]

The international markets now are growing middle classes of 2+ billion Chinese, Thai, Vietnamese, Indians, and others who did not have wide access to U.S. spirits nor the disposable income 15-20 years ago. In many of those developing markets, U.S. products are often seen as premium/luxury brands, so a seller doesn't necessarily have to discount a lot to make money.

I don't know all the intimate details of international liquor trade however the nature of the new markets is very different from the slow-growing Europe and Japan of decades ago.

Based on my 2+ week visit to China last year, it will be some time before they become major consumers of bourbon as it was nearly non existent there.

[The Black Tot]

Based on my 2+ week visit to China last year, it will be some time before they become major consumers of bourbon as it was nearly non existent there.

That is what I'm seeing in a lot of other countries, too, flahute

[El Vino]

If you look at the market for scotch or wine, premium expressions have always commanded a premium price. Prior to the craziness, the spread of bourbon pricing from top to bottom was much tighter. Even after the current craziness dies down, I expect the days of the tight spread are over. A hand full of premium brands will now be able to command a significant price. Regardless of the breadth of demand from foreign buyers, given the size of the global spirits market, it only takes a small increase in demand to change the structure of pricing. So, more supply will relieve the shortages of mid to top shelf expressions. But the limited edition bourbons will be as hard to find and afford as the super premium aged scotches. Even wine: look at Screaming Eagle Cabernet from California: it IS good, but could it possibly be worth $1500 a bottle? A California wine? Any wine? The world is swimming in great red wine. Yet it has held it's premium price for over a decade with no sign of slippage.

[T Comp]

El Vino;476180]If you look at the market for scotch or wine' date=' premium expressions have always commanded a premium price. Prior to the craziness, the spread of bourbon pricing from top to bottom was much tighter. Even after the current craziness dies down, I expect the days of the tight spread are over. A hand full of premium brands will now be able to command a significant price. Regardless of the breadth of demand from foreign buyers, given the size of the global spirits market, it only takes a small increase in demand to change the structure of pricing. So, more supply will relieve the shortages of mid to top shelf expressions. But the limited edition bourbons will be as hard to find and afford as the super premium aged scotches. Even wine: look at Screaming Eagle Cabernet from California: it IS good, but could it possibly be worth $1500 a bottle? A California wine? Any wine? The world is swimming in great red wine. Yet it has held it's premium price for over a decade with no sign of slippage.[/quote']

El Vino Veritas :cool: .

[smokinjoe]

El Vino Veritas :cool: .

[The Black Tot]

I don't think any "days are over" statement can possibly be accurate, since supply and demand have always been cyclical, and the boom we are in today is pretty undeniably abnormal, historically.

The more prices (and therefore profit margins) stay high, the more competition starts up to address it, putting it back into balance. In the case of bourbon there is a major production lag time involved, resulting in more exaggerated booms and busts.

It's not just the purchasing levels (buying rate faster than consumption rate) that are abnormal by this point, it's the value concept. The idea that spending $250, which might be 1/4 of someone's mortgage payment or their entire car payment on a bottle of booze represents good value is neither precedented nor economically sustainable in the long run. While some people certainly can afford it comfortably, a significant portion, and I'm understating here, of the Western world is presently living well beyond its means.

I saw a guy who looked like he was in his 20's on facebook today posting that the WHH cask strength that he paid $550 for on secondary the day after it was released for $250 comment that it was "worth every penny". Maybe he's a millionaire - I don't know him. But it looks like a cultural red flag to me. I do all right, and for me $550 is a lot of pennies.

Which leads me to agreement with Squire's point earlier about any single major Western nation faltering. On the current trajectories, it's not really a question of "if".

I believe that a huge part of the mania engulfing the luxury markets today (of which $250 bottles certainly form a part) is driven by the "50K millionaires" segment of the population. There are certainly enough people on six figures out there, but I don't think there are enough to account for the volume of people buying presently as though they were on six figures.

El Vino is right, the prices on wine have held for a decade. But we've got to admit if we're going to cite this last decade that it's been a pretty irrational decade, with some pretty scary fundamentals lurking around the corner with a blackjack.

Edited June 6, 2015 by The Black Tot

[Spade]

Like others have said, I definitely don't think the prices on the secondary market are sustainable in the long-run. But, the fact that people are paying $500 or more for a 15 year old bourbon suggests there's quite a way to go. Even the retail price of $250 would have seemed ludicrous to me not that long ago.

I think El Vino is right — the relative price of premium bourbon was pretty low compared to scotch, etc. Another reason to think prices will stay high and availability will remain scarce. I think the premiums and limited editions are going to be out of my reach for quite some time.

With that in mind, I think I might go have a pour of Rittenhouse or maybe WT101.

[Scotch Neat]

Like others have said, I definitely don't think the prices on the secondary market are sustainable in the long-run. But, the fact that people are paying $500 or more for a 15 year old bourbon suggests there's quite a way to go. Even the retail price of $250 would have seemed ludicrous to me not that long ago.

I think El Vino is right — the relative price of premium bourbon was pretty low compared to scotch, etc. Another reason to think prices will stay high and availability will remain scarce. I think the premiums and limited editions are going to be out of my reach for quite some time.

With that in mind, I think I might go have a pour of Rittenhouse or maybe WT101.

[The Black Tot]

True, but the IWH15 has a manufactured scarcity/limited edition effect being spun on it.

If the Lag was a distillery edition or a one-off, it would be higher than the IWH

[Spade]

That's a great price for Lagavulin. At $60, it would be a regular in my cabinet.

As to the IW Harper 15, I agree with TBT that part of the price reflects that it's a limited release — or is being marketed that way at least. The Lagavulin distiller's edition usually goes for a pretty big markup compared to the regular release, for example. And, the high price tag for things like IW Harper are, in my experience at least, a pretty new phenomenon.

[TunnelTiger]

The LE's at $250 - $300 aren't out of my reach but I refuse to pay. Most are great but not that great.

[El Vino]

TT, I hear you. I got into this hobby just as the craziness was beginning. But I did walk into NJ liquor stores and find Pappy on the shelf at MSRP. Actually went in to Total Wine in FL and bought a case of the 10YO Pappy for my Dad. But worldwide whiskey consumers have woken up to the fact that the LE's are some of the best whiskey's in the world and are now being priced (in the secondary market now but the primary markets are sure to follow) to reflect that. I am sure that cycles in markets and economies will come and go, but the days of the tight (relative) spread in pricing are gone. Even in the heat of the financial crisis in 2008 and 2009, wine and scotch prices didn't go down - and that was worst US economic crisis since the depression.

[CL]

Even the retail price of $250 would have seemed ludicrous to me not that long ago.

It still is ludicrous to me. :-) My normal limit is $100. I occasionally go above that for bourbons no longer being made. I've temporarily stopped buying FR gift shop selections. At $73+tax last time I checked last fall, it was too much for me. Well, after I bought the last two bottles of OESK. ;-)

[The Black Tot]

and that was worst US economic crisis since the depression.

I can't go too far into this without this needing to be bumped to the Politics area, but 2008-2009, while historically significant, was far more economic fear-mongering and corporate theft-by-bailout than it was a legitimate economic crisis. It made the underlying problems that still exist worse (kicking the can down the road for a real crisis), but it did not disrupt the culture enough to result in behavioral or value changes. Periods like the depression changed cultural attitudes sharply and enduringly. Anyone who was an adult during that period never forgot the value of money.

Few people today respect the value of money and savings, which is precisely how someone in their 20's can say that $550 on a bottle of whiskey is "worth every penny" and have other twentysomethings like the comment. 2008-2009 did nothing to change the trajectory of US household monetary policy. We all got scared for a bit, gave corps a huge amount of money which future taxes will have to pay back, and then got back to our regularly scheduled hedonism/excess.

Edited June 8, 2015 by The Black Tot

[El Vino]

I can't go too far into this without this needing to be bumped to the Politics area, but 2008-2009, while historically significant, was far more economic fear-mongering and corporate theft-by-bailout than it was a legitimate economic crisis. It made the underlying problems that still exist worse (kicking the can down the road for a real crisis), but it did not disrupt the culture enough to result in behavioral or value changes. Periods like the depression changed cultural attitudes sharply and enduringly. Anyone who was an adult during that period never forgot the value of money.

Few people today respect the value of money and savings, which is precisely how someone in their 20's can say that $550 on a bottle of whiskey is "worth every penny" and have other twentysomethings like the comment. 2008-2009 did nothing to change the trajectory of US household monetary policy. We all got scared for a bit, gave corps a huge amount of money which future taxes will have to pay back, and then got back to our regularly scheduled programming.

This is best discussed while consuming a good glass of your favorite whiskey. Can't argue with some of your points, but thanks to Paulson and Bernanke we had a far better policy response.

[mbroo5880i]

Often industry peaks follow periods of significant additional capital investment to increase production. Money chasing returns. I work in the steel industry and we have seen this cycle many times. I am not saying that the recent major capital investment we have seen in the distilled spirits sector indicates we are close to the peak but this cycle occurs in most industrial sectors. I don't believe the distilled spirits sector will prove to be any different. Capacity always lags demand. You never know when the pendulum has swung the opposite direction until you are on the other side looking back. Then, usually an outside factor influences demand in a way not foreseen.

[The Black Tot]

Definitely agree about the discussion/consumption recommendation

[mbroo5880i]

^^^^ Haha...me too!

[The Black Tot]

Mbroo, yes, this is a good observation.

While we can't say for sure what will happen to demand and when in the future, history does teach us it's cyclical. Nothing stays on top forever.

Combine this with the verifiable fact that we'll soon have more whiskey laid down than ever before in history (worldwide), we CAN predictably say that supply is going to substantially increase, barring a freak cataclysm like a tornado that perfectly runs the bourbon trail

Future demand is going to be under a LOT of pressure to keep up with that supply. And the moment it wavers, prices have to fall.

[shoshani]

Future demand is going to be under a LOT of pressure to keep up with that supply. And the moment it wavers, prices have to fall.

And along with that, we'll again see the phenomenon of 25-30 years ago, where well-made whiskey was being bottled at a higher age than one would expect for a standard BIB, yet could be purchased for a song.

[The Black Tot]

Yes. In a way it's a very beautiful cycle.

[smokinjoe]

Yes, cyclical. But, please let's not hope for a repeat of the glut. Yeah, we were able to pick up some nice whiskey at nice prices, but oh my the damage done to the industry that precipitated it... As I wish the cycle "Up" that we're currently in would be more controlled, I hope that the cycle "Down" will be smooth, as well.

[TunnelTiger]

This. Also while it's true there are always cycles there is no way to determine how long the cycle lasts. Could this be a 10 yr, 20 yr, or even a 50 yr cycle? No one knows.

[jfw]

When PA puts out limited bourbons and they are Barterhouse and the regular IW Harper (not the 15 year) and they sell out in a few hours, we have not peaked yet. The IW Harper is mediocre at best. BT, FR Yellow label and WT 101 are way better IMHO and all cheaper. Barterhouse is decent bourbon but overpriced. I passed on both. I think we have at lest another couple of years before the peak.

[TheCincyKid]

APPLAUSE. Well said!

I think it's closer to bursting than ever. Quality has become less relevant, giving way to more and more extreme monetization and the aftermarket trading of coveted limiteds. It resembles an amateur stock market more and more each day.

Gradually worse bourbon selling for gradually more money.

Bunkers swelling everywhere. Veteran posters talking about how they haven't bought anything in two weeks, three weeks, a month...

Four Roses doesn't have enough highly aged stuff left to do a single barrel limited for 2015. Their picks now peak out below 11yrs in age, with most 10 at best, and a lot of 9s. It's now getting tough to find or pick a Smooth Ambler 10 barrel proof. SA is offering 7yr picks now. Last year I bought a few 11s, because I had the feeling I wouldn't be seeing them for a while.

ECBP, as mentioned above, is getting to be poorer and poorer value in most places. People seem to be finding it easier now in markets where it used to be harder, and when they do they are buying 3-cases at a time (judging from car shots on fb). I think it's now to the point where ECBP could be sold at a better profit margin than EC12. ECBP could be ramped up in production pretty easily (does it have an age statement? I don't remember).

Stores have lost their minds thinking it's perfectly reasonable to have up to 900% markups on their product. Poor saps out there reinforced this by paying it at the start, but more and more I'm reading about these $350+ BTACs and $800 Pappys sitting on shelves in the "What bourbon did you pass up today" thread. I think that's an early indicator.

The only distilleries with what seems to be a lot of high-aged bourbons are Diageo's Stitzel-Weller (only a distillery in name, we know). HH and BT have their usual slowly climbing allocations of the higher ages - too slow to meet current demands, but they refuse to pillage their rackhouses and insist on pace.

The inability and frustration of newer enthusiasts to find limited bourbons is resulting in a pressure that is pushing out into other spirits. Some of it is blowing back into scotch, but nearly every spirit category is going through a process of premiumization where people even with working class jobs think you need to spend $250 on a bottle to make something a special occasion. Some very expensive tequilas and rums have emerged and are emerging. That new normal is here.

By the end of 2015, two new major stills will be in. Bulleit and Michter's. I'm sure I missed at least one. Willett's own make 4yr products come online in about a year and a half. BT will have a new large rackhouse in 2015. MGP now offers a wheater. The Old Taylor Distillery comes back to life in early 2016. In short, 8 years from now we'll be swimming in the stuff, and you can't sell that much MORE bourbon at the presently inflated pricing. People can't consume that much, and many of them also can't afford it.

The economy is still fragile (the whole oil sector is presently tanking (pun intended - I'm in it so I get to make jokes), and interest rates have only one direction to go from close to zero, which would dramatically reduce people's bourbon budgets).

4R limiteds have gone to $70+ (if you haven't seen that yet, it's only because your store hasn't sold out of it's $50-level stock yet), and get this - a group I know of was just quoted $70s for a 2015 SAOS 9yr barrel pick. Yup.

OWA and W12 seem to be bouncing back in availability in their traditional markets. BT's ramped up production will reach OWA age in just a few years. Even ETL will probably catch up by the 2nd Oct release this year.

So the brakes are on, and hard. Prices are hitting new levels this year, the bourbons are going to be capped at lower ages, and the traders and flippers don't care that their "product" has increasingly lower value or significance despite higher and higher pricing.

Sillier and sillier products hit the market. Sauternes finished this and Grand Marnier finished that. Double oakings and toasty barrels. Whether they're good or not (and some are), they're still reaching for ideas.

The more experienced guys are getting off the merry go round in packs now. For now, they're being replaced with the late twentysomethings in their bar years who have seen the premiums explode onto the craft bar menus. But there isn't another wave behind these guys, and if this bubble bursts and the thousands they put into it all crashes in value, they'll be turned off pretty quick. They're also, demographically, about to soon get married and have homes and families to pay for.

People also eventually learn (as I have, a while ago, thanks guys!) that there's a few <$30 bottles that they actually really enjoy drinking. When these new younger limited-chasers get to that point (and it will happen fast based on the accelerated rate of their buying), look out super-premiums.

I'm not an early adopter by any means, having only gotten serious about bourbon in early 2014, but even I'm already sitting back with my bag of popcorn, watching people do worse and worse value things with each passing month. Each month it's easier to say no to the newest wave of limiteds.

It's a very fascinating time. I think the producers know that the only way to keep this premium market going is to keep us bedazzled with a steady stream of limited offerings (which a lot of them are struggling to create, as mentioned above). Too long of a drought and people will move on, lose interest, or perhaps more accurately, get detoxed out of their addiction to the limited hunting/purchase rush. There's a large and conspicuous gap between now and October. I think BT should return to spring and fall bottlings of BTAC and pappy, personally, although it would probably just drive the retailers even more nuts with people harassing them.

Anyway, looking at it, there's not a lot of super fab bottles scheduled between now and then. I think we could really start to see a building wave of enthusiast apathy this year. Not enough to make BTAC easy to get this fall, but maybe a little less crazy than 2014.

So that's my March 2015 state of the bourbon union address, haha. I predict a cooling but not a crash for the end of 2015, driven by less availability of truly exciting product and a resulting switch to lower-shelf enthusiasm or other spirit categories. The crash comes in a few more years when supply starts to get out of control.